Market Commentary 8/28/20

U.S. equity markets continue to move higher this week. The Fed chair further supported the markets with recent comments on changes in the way the Fed will target inflation and full employment. The Fed is unwavering in keeping interest rates low for longer. For the moment, there is no fear of inflation. With millions of Americans still unemployed or under-employed, zero rate interest policies are designed to spur on the investments in riskier assets, help corporate and individual borrowers refinance to lower debt service, and inflate asset prices to boost consumer and business confidence. Inflation is no longer feared by the Fed and is actually being encouraged through their policies. The bigger and less talked about fear is the threat of deflation or even worse stagflation. 

With the economic activity improving and our society adjusting to living with the pandemic, mortgage rates have been moving higher ever so gradually.  There are still many land mines that could drive rates lower, such as the return of major outbreaks of Covid-19 in the fall, U.S.-China tensions, an unexpected drop in equities, and the U.S. Presidential and general elections.  However, as improving consumer and business data continue to trickle in, the risk seems tilted toward higher interest rates.  The Fed wants inflation and the old saying of “don’t fight the Fed” can loosely be applied to where mortgage rates might head in the coming months. We remain mindful of how quickly interest rates may move if the market is surprised by better than expected positive news. We are encouraging our borrowers to take this into consideration when looking for a new home or refinancing an existing one.


Market Commentary 4/3/20

COVID-19 continues to be the focus as the entire world fights this disease and many countries hit pause on their economies to help tame the spread of the virus.

The U.S. saw the highest weekly jobless claims on record on Thursday as well as a downright awful March employment report. While the numbers were horrible, it was not unexpected. As we have opined previously, economic data is meaningless when the economy is on hold. What is important is COVID-19 testing, infection rates, and government assistance programs. We need testing to determine who is sick or has built an immunity to the disease so they may stay isolated or go back to work, and we need assistance to keep businesses from laying off staff or closing down so that once the virus passes, the economic engine can begin to churn.

The state of the residential mortgage market has tightened, as expected. However, our suite of lenders are still active and are offering common-sense underwriting. Most lenders are now offering drive-by appraisals as a safety-first response to the virus. Mortgage rates have decoupled from U.S. Treasury rates as banks are pricing mortgages higher in response to the volume surge and uncertainty of the moment (same with the commercial market). Liquid reserves are key and are being weighed more heavily on jumbo mortgages than income analysis. Interest-only loans and cash-out refinances are still available but at reduced loan-to-values. Overall, our lenders want to continue to help clients through this difficult time with a slightly more cautious approach when underwriting larger loan requests.